PolicyLens

Methodology note

Raise defence spending to 3 percent: calculation note

Scenario assumptions behind the Raise defence spending to 3 percent estimate. The figures are illustrative and exclude unrelated Conservative pledges.

View main policy page: Raise defence spending to 3 percent

Central fiscal result

+GBP 19.0bn - Net fiscal impact in 2028-29

Low case: +GBP 12.0bn. High case: +GBP 30.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

  • Model defence spending at 3 percent of GDP in 2028-29.
  • Central cost compares with GBP 73.5bn planned departmental spending.
  • GDP and NATO-definition uncertainty widen the range.
  • Aid and welfare offsets are not netted here.

Affected population

  • Affected population is defence forces, suppliers and taxpayers.
  • Direct beneficiaries include MOD, contractors and defence workers.
  • Indirect exposure includes engineering labour markets and regional supply chains.
  • Public-service opportunity costs are outside the direct line.

Gross impact

  • Central gap to 3 percent target: about GBP 19bn.
  • Low case assumes current plans already close much of the gap.
  • High case assumes GDP definition and equipment inflation raise cost.
  • No multiplier or innovation dividend is booked fiscally.

Fiscal build-up, central case

  • Additional defence spending: +GBP 19.5bn
  • Tax receipts from activity: -GBP 0.4bn
  • Procurement administration: +GBP 0.1bn
  • No offsetting aid cuts here: -GBP 0.2bn

Central net impact: +GBP 19.0bn in 2028-29.

Behaviour and pass-through

  • Low case assumes lower GDP and more existing defence-path coverage.
  • Central case assumes 3 percent target versus spending-review baseline.
  • High case assumes higher nominal GDP and procurement inflation.
  • Supply constraints can raise prices before capability.
  • Innovation spillovers are possible but not guaranteed.

Phasing

  • 2026-27: +GBP 1.9bn. Preparation or partial implementation.
  • 2027-28: +GBP 10.5bn. Main ramp-up year.
  • 2028-29: +GBP 19.0bn. Target-year central estimate.
  • 2029-30: +GBP 19.0bn. Continuation at steady-state assumptions.

Main source groups

  • con-plan-2026: Conservative live policy page; used to identify current pledge wording.
  • commons-defence-2025: Commons Library defence briefing; defence-spending baseline.
  • commons-oda-2026: Commons Library aid briefing; current 0.3% GNI reduction path.
  • obr-efo-mar-2026: OBR March 2026 forecast; fiscal and macro baseline.
  • ramey-2011: Government spending multipliers; informs behavioural and incidence assumptions.
  • moretti-steinwender-vanreenen-2023: Defence R&D spillovers; informs behavioural and incidence assumptions.
  • barro-redlick-2011: Spending and tax multipliers; informs behavioural and incidence assumptions.